Revenue Deficit

If total Revenue receipts are more than total revenue expenditure, it is called revenue surplus. If the total revenue receipts are less than total revenue expenditures, it is called Revenue Deficit.

Implications of Revenue Deficit and Revenue Surplus on Economy

Revenue expenditures are a consumptive kind of expenditures and that is why the Governments try to minimize the Revenue deficit. The Revenue deficit does not add into the production of productive assets so, it is considered dangerous to have a large revenue deficit.

Revenue surplus is good because it would give the government some opportunity to use some of the surplus in those activities which might create some productive assets. But the revenue surplus is not appreciated for many other reasons. We can easily understand that if the Tax revenue of the Government is increased, it may give the Revenue surplus to the Government. But ultimately it would not be judicious to burden the public with large taxes. Further, large taxes would result in Tax evasion, corruption and problem of black money. So, the aim of the governments is to have a judicious tax structure, so that the balance is near Zero.

Primary Deficit

The Revenue expenditures include the interest liabilities of the Government. If the interest liabilities are NOT included from the revenue deficit, it is called primary Deficit.

How can government increase revenue receipts?

Since the grants are generally fixed, the most common way to increase revenue receipt is to raise taxation. Raising taxation also implies increasing Tax-GDP Ratio and this would include:

  • Raising tax rates i.e. direct and / or indirect
  • Lowering tax exception slabs
  • Impose new taxes, cess or surcharges
  • Improving profitability of PSU companies.
  • Increasing government business.
How can government curb the revenue deficit?

The government can curb the revenue deficit either by increasing revenue receipts or by decreasing revenue expenditure. Revenue expenditure can but reduced by a cut in social expenditures and subsidies. Since both ways have their own economic and political ramifications, government could never achieve what it was supposed to achieve as per the FRBM act. The FRBM act had mandated the government to eliminate revenue deficit by March 2008 (it was later shifted to March 2009). It has never been achieved. The act also mandates the government to place the three separate documents along with Budget documents viz. Macro-Economic Framework Statement, Medium-Term Fiscal Policy Statement and Fiscal Policy Strategy Statement. These statements every time reiterate the government vow to achieve FRBM targets.

Revenue Deficit in India’s budget

The term Revenue deficit and fiscal deficit are being used in the Government of India Budget since the fiscal year 1997-98. Please note that since 1997-98, the Government budget has shown revenue deficit every year.